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Western Price Survey / Archives

April 18, 2001
Did PG&E's Bankruptcy Drive Prices Higher?

When California Governor Gray Davis alleged that power prices paid by
the state rose nearly 60 percent following Pacific Gas & Electric's
bankruptcy filing, most reporters had to take the claim at face value.
With the state refusing to provide information about purchases made by
the Department of Water Resources, there is no way to independently
test Davis' statement that generators and suppliers are charging a
"credit penalty" that pushed the daily cost of power bought
by DWR from $45 million to $73 million.

In the void left by the demise of the California Power Exchange, the
only relevant--if incomplete--source of information on state power
purchases has been from the California Independent System Operator.
However, a daily update of energy prices for power purchased on Cal-
ISO's imbalance energy markets and via emergency dispatch orders was
silenced last week at the request of the state. "We are
discussing with the state the release of pricing and timing of
release," was all a Cal-ISO spokesperson would say when asked
about the notice of "temporary suspension" posted on the
site this week.

The last entry for the page on April 11 showed that Cal-ISO had
purchased 1,124 MWh at an average $135/MWh through its capped market
clearing price bids.

As-bid energy purchased on the imbalance energy market came to 1,406
MWh at $347/MWh, and the out-of-market (OOM) purchases totaled 42,874
MWh at an average $520/MWh. This latter figure, indeed, was the
highest posted OOM price since February 19, but the cost of purchases
$22.3 million was only slightly higher than average for the past two
months.

OOM prices from April 7-11 ranged from $$394/MWh to $520/MWh, which
was higher than the $299/MWh to $370/MWh range seen April 1-6.
However, daily imbalance energy prices did not vary appreciably either
before the Chapter 11 filing, in the $225 to $330/MWh range, or after
in the $228 to $347/MWh range.

A review of bilateral energy prices throughout the region indicates
that the week of April 9-13 experienced a significant boost in prices
at Mid-Columbia, the California/Oregon Border and NP15 hubs. Because
of the transmission bottleneck caused by the outage of the DC
Intertie, southern hub prices were substantially lower, however.

CALIFORNIA ENERGY MARKETS' Western Price Survey noted the rise last
week, as did the Dow Jones Index prices for various Western hubs.
Prices plummeted sharply heading into this week because the Intertie
went back into service Sunday night, Northwest loads diminished, and
market activity was light to non-existent while many utility
schedulers were in Reno for a meeting of the Pacific Northwest Power
Pool group (see the preset prices for the week so far in the chart
below).

To some power traders, this suggested that other factors were far more
influential than PG&E's filing and that last week's price hikes were
not specifically directed at DWR. Gary Ackerman, executive director of
the Western Power Trading Forum pointed to the continuing problems of
drought in the Pacific Northwest setting last week's high prices.
"If anything, I think the generators and marketers would take
solace in the fact than bankruptcy brings order to an otherwise
volatile situation," Ackerman told the Los Angeles Times.

Others also doubted a cause and effect linkage, citing Cal-ISO's Stage
Two alert early last week and the continued outages by independent
producers, who are only partially back in business because the checks
sent by the utilities may not be enough to cover their costs of
production. "PG&E's bankruptcy had nothing to do with the
prices," a Southwestern utility power scheduler told CEM. "
The credit problem has been the same whether the utility is in
bankruptcy or teetering on the edge."

While analysts might be able to make a claim that California is paying
a crisis premium, that has been true all year. Information is limited
to whatever Cal-ISO has publicly revealed since February, but it is
apparent that daily imbalance energy prices have been running as much
as $50 to $75/MWh higher than bilateral prices at NP15.

There is no precise correlation as the imbalance prices and volumes
vary widely each day. And there is not real comparison between day-
ahead prices reported for NP15 and the day-of and real-time purchases
that Cal-ISO is forced into. However, in terms of numbers, the OOM
prices seem to correlate most closely to daily non-firm, or real-time,
prices at COB as reported by Dow Jones.

DWR has not revealed its day-ahead buys at all, making direct
comparisons with bilateral market prices impossible. Given the context
of Davis' claims-as part of his attempt to pitch the Legislature on
his deal with Southern California Edison and his office's not-so-
subtle attempts to discredit PG&E for seeking bankruptcy protection-
the allegations may be more political than reliable.

Meanwhile, DWR has indicated it will backstop power purchases made by
Cal-ISO, but only to the extent the energy is "reasonably
priced," according to Ray Hart, director of DWR. The Federal
Energy Regulatory Commission has ruled that Cal-ISO's purchases have
to be backed by a creditworthy party [affirmed and clarified April 6
in EL00-95]

A vaguely worded memo distributed by Cal-ISO to market participants
seemed to indicate that either DWR or "another qualified
party" would be guaranteeing payment for ancillary services or
imbalance energy purchases-however, but no on appeared sure about the
criteria for reasonable prices or the value of the vague assurance
[Arthur O'Donnell].

Western Electricity Prices
Mid-Week April 18, 2001

Hub

Peak (heavy)

Off-peak (light)

Alberta Pool (C$)

97.8

65-82

Mid-Columbia

230-280

200-220

COB

235-250

180

NP 15

235-265

160-180

SP 15

225-230

110-120

Palo Verde

215-232

103-110

Archives of the Western Price Survey for the past year are also available online.

The Western Price Survey is excerpted from Energy NewsData's
comprehensive regional news services. See for yourself how
NewsData reporters put events in an accurate and meaningful
context -- request a
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